Transaction on the balance sheet


Problem: The January 1 balance sheet of the Marvin Company, an unincorporated business, is as follows:

Marvin Company
Balance Sheet
As of January 1

Assets    Liabilities and Owners' Equity
Cash    $25,000    Notes payable    $20,000
Inventory    50,000    Capital    55,000
Total    $75,000    Total    $75,000

The following transactions took place in January:

Jan 4    Merchandise was sold for $12,000 cash that had cost $7,000.
Jan 6    To increase inventory, Marvin placed an order with Star Company for merchandise that would cost $7,000.
Jan 8     Marvin received the merchandise ordered from Star and agreed to pay the $7,000 in 30 days.
Jan 11    Merchandise costing $1,500 was sold for $2,500 in cash.
Jan 16    Merchandise costing $2,000 was sold for $3,400 on 30 day open account.
Jan 26    Marvin paid employees for the month $4,200 in cash.
Jan 29    Purchased land for $20,000 in cash.
Jan 31    Marvin purchased a two year insurance policy for $2,800 in cash.

Required:

Describe the impact of each transaction on the balance sheet, and prepare a new balance sheet as of January 31.

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Finance Basics: Transaction on the balance sheet
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